Firms from Vietnam and South Korea are benefiting from tariff slashes under the Korea-Vietnam Free Trade Agreement and other trade pacts by boosting their trade co-operation, with the two countries raising their bilateral trade turnover by 40 per cent by 2020.
On the back of tariff slashes, bilateral trade with South Korea has reached record high, Photo: Le Toan
The General Statistics Office reported that the total bilateral trade turnover between Vietnam and South Korea for 2017 reaches a record figure of over $61.8 billion, up 41.7 per cent against last year.
Out of this number, Vietnam has spent $46.8 billion importing goods from South Korea – up 45.5 per cent against 2016 and 69.4 per cent against 2015. And Vietnam earned $15 billion from exports to South Korea – up 31.1 per cent year-on-year.
This means Vietnam has witnessed a trade deficit of about $31.8 billion this year, up 53.4 per cent from $20.8 billion in 2016. In 2015, the figure hit $18.7 billion.
“Many are worried about a strong rise in Vietnam’s trade deficit with Korea. However they shouldn’t be, and should understand that Vietnam’s imports from Korea are largely conducted by Korean firms in Vietnam – mostly Samsung. They largely import machinery, equipment, and materials for production, and then export products from Vietnam to foreign markets,” the Korea Chamber of Business in Vietnam’s (KorCham) vice chairman Hong Sun told VIR.
Samsung’s export turnover is expected to be $53 billion in 2017, accounting for about 25 per cent of Vietnam’s total export turnover of $214 billion. Samsung also holds 95 per cent of the total export turnover of Korean firms in Vietnam.
“Meanwhile, Vietnam’s exports to Korea, mostly end-products and consumer goods, have increased rapidly by over 31 per cent this year, against last year’s 28 per cent rise,” Sun said. “Thus I would say that firms from both countries are taking good advantage of the Korea-Vietnam Free Trade Agreement (KVFTA) and other trade pacts between Korea and ASEAN.”
These pacts include a goods trade agreement that took effect in 2007, and a commercial services deal and an investment co-operation agreement that came into force in 2009. These pacts have created the ASEAN-Korea Free Trade Area (AKFTA).
According to KorCham, the most important thing now is for the two countries to boost exports to each other’s markets. Thus, during the Korea-Vietnam Summit organised in the central city of Danang on November 11, on the sidelines of the 2017 APEC Economic Leaders’ Week – South Korean President Moon Jae-in and Vietnamese President Tran Dai Quang pledged to boost the countries’ bilateral trade to $100 billion in 2020, an increase from the former target of $70 billion set by the two countries in 2013.
According to Vietnam’s Ministry of Finance, by 2018, 86 per cent of the import tariff lines under the AKFTA will be reduced to 0 per cent, from an average of 50 per cent now.
Also, under KVFTA commitments, Vietnam will completely remove its import duties on 89.9 per cent of all products from South Korea over a 15-year period.
For example, Vietnam will remove tariffs of 30 and 20 per cent imposed on Korean air conditioners and rice cookers, respectively, over the next 10 years. The average tariffs for foodstuffs and consumer goods will gradually fall from the existing 16-17 per cent to 0 per cent over the next five years.
The Korea International Trade Association two months ago issued a survey on 1,015 Korean small- and mid-sized export firms. Results showed that over 33 per cent of respondents said they plan to expand facilities in Vietnam, followed by China (19 per cent), ASEAN member nations (10.7 per cent), and India (8.3 per cent).
LG Display, one of South Korea’s leading display manufacturers, is now fast-tracking its recruitment of thousands of workers and engineers for its $1.5 billion plant in Haiphong. The plant will produce new-generation OLED screens for mobile phones, smart watches, tablets, and TVs, with 80 to 90 per cent set for export.
Lotte Duty Free, South Korea’s top duty-free operator, is planning to open its second airport outlet in Vietnam in Cam Ranh International Airport in Nha Trang by mid-2018, when the airport’s new terminal is completed. Earlier in October, Lotte opened an outlet at Danang International Airport, making it the first Korean duty-free operator to enter Vietnam.
According to Vietnam’s Ministry of Planning and Investment, South Korea is Vietnam’s second-largest foreign investor. During the January 1-December 20, 2017 period, Vietnam attracted 861 Korean projects registered at nearly $4 billion.
By Nguyen Dat